Tesla Motors Inc (NASDAQ:TSLA) has been accused of many things in its time, but today may mark the apogee of insult. A. Barton Hinkle, over at Reason.com, says that Tesla is “the perfect specimen” of “what is wrong with capitalism in America today.

Tesla Motors

Hinkle is clearly coming from a specific set of economic and social tenets. His points about Tesla Motors Inc (NASDAQ:TSLA) may stand up given the acceptance of those axioms, but not everybody holds them. Tesla does not epitomize “the folly of government intervention” necessarily. For many it demonstrates when government intervention can work well.

Tesla and government picking winners and losers

Tesla Motors Inc (NASDAQ:TSLA) is indeed one of the cases where the government helped to pick a winner in the market. But it did not do so arbitrarily, or in a vacuum. The government wants to lower carbon output and improve transportation in the United States. The base technology of the electric car has been around for a long time. The market has failed again and again to address these problems.

Tesla has received a huge amount of help from the government. No rational person would disagree with the facts that Hinkle provides on this front. Hinkle seems to be coming from a place where this is a bad thing in its own right. Many Americans do not think like that.

The piece does not only concentrate on the government picking winners like Tesla Motors Inc (NASDAQ:TSLA), it also looks at the government picking losers, like Tesla Motors Inc (NASDAQ:TSLA). On this front Hinkle points to the state bodies barring Tesla from selling directly to consumers.

Conflict between state and federal law have been a factor in America since the beginning of the nation. It is one of the foundations of the country’s political system. It is not an argument for the government not to intervene in the economy. The government has to pick winners, just not all of the time.

The government has to pick winners

Externalities are an incredibly important part of modern economics. An externality is the cost that economic activity levies on those not involved. In the auto industry it means pollution which leads to global warming among other more direct problems.The California credits system, highlighted by Hinkle, is a way for the government to let the market sort those externalities out.

There are examples of the government “picking winners” all of the time to combat the force of externalities. Farm subsidies, which cost the United States $10 billion to $15 billion every year. There are a number of factors that farm subsidies were designed to promote, including the protection of small farmers. Their number one goal is the continuing production of enough food for the United States in the United States.

This is to combat the problems that would occur if there was a major war or another form of global instability. Food security is well worth insurance of $10-$15 billion a year.

Global warming is an externality of many different forms of activity, but transportation is a major part of it. If Tesla Motors Inc (NASDAQ:TSLA) is going to lower the amount of carbon output resulting from transport it is worth the money the government pays for its.

The government should leave the free market alone as long as it is working. If there is a market failure, for example the inability of traditional auto makers to think in the long term, the government should step in. In this case the government has stepped in and everybody should be happy that there is a real electric alternative out there.

Tesla Motors Inc (NASDAQ:TSLA) is basically a monopoly right now. The government walked into the auto industry and picked a winner. They weren’t, however, given a whole lot of choice. Tesla Motors was the only company willing to offer the kind of vehicle the government thought was necessary. If the government were able to just walk in and pick winners, Solyndra would still be around.